Indonesian Rice Supply Performance in the Trade Liberalization Era

Rice supply has become a major problem in Indonesia particularly in the last two decades when self-sufficiency is unable to be maintained. All available policy options to induce farmers to grow more rice are severely constrained. Hence, there is no choice for the Indonesian government except importing rice. Yet, government sometimes temporarily banned imported rice when rice supply is abundant to keep the paddy price at farmer level well above the procurement price. This policy is actually divergent to free trade agreements where all of trade barrier must be embedded on tariff. This study is conducted to analyze the impact of free trade and it consequences to the Indonesian Rice Economy. Data utilized in this study were secondary time-series data concerning Rice Economy in Indonesia from 1970 to 2002. Simultaneous regression equations were utilized to produce models to understand the nature of rice supply and demand as well as the impact of free trade agreement to rice producers, consumers, government and other bodies involved in the rice trade in Indonesia. The result of this study shows that introduction of reasonable tariff and government involvements are still required to stabilize the rice supply system in Indonesia. Removal of import tariff and government involvement, e.g. BULOG, will significantly reduced producer surplus. This will subsequently reduce the competitiveness of rice production and create more constraints for rice producers in Indonesia. With regard to government policy, food security should not only be translated as the availability of inexpensive food for consumers but also the willingness of producers to produce more rice in the future. While tariff should be gradually reduced by the agreements, Indonesian government should provide better technology and institutional instrument supports for rice producers that mostly are small farmers.